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Self-employed taxpayers who paid themselves artificially low salaries to avoid the top personal tax rate are being given an extension of time to confess all to the Inland Revenue Department and arrange to pay back-tax.

Group Tax Counsel, Graham Tubb, said that following the outcome of the Penny and Hooper case, Inland Revenue agreed to accept settlement for those who make voluntary disclosures for the most recent two years, instead of four.

"The Commissioner's objective is to encourage taxpayers who are in an arrangement similar to that of Penny and Hooper to not only change their behaviour but contact Inland Revenue and discuss their arrangements with us."

"Therefore we have agreed to extend the two-year limit to those who disclose an incorrect tax position before 31 March next year. Full four-year audits may be commenced however at any time for taxpayers who have received risk review letters but who do not make a voluntary disclosure."

Tubb said that as at 5 October 2012, over 170 taxpayers in tax positions that were broadly equivalent to Penny and Hooper had made voluntary disclosures, resulting in over $4 million of additional revenue being collected.

The IRD established a concession arrangement after winning the so-called "Penny and Hooper" tax avoidance case, involving two surgeons who changed their personal arrangements to coincide with the introduction of a higher personal tax rate in 2001.

That arrangement is now being extended to March 31, 2013, in anticipation of further voluntary disclosures by taxpayers who otherwise may face tax avoidance probes.

The New Zealand Institute of Chartered Accountants (NZICA) said in a media statement that the extension would give its members certainty about how the Penny and Hooper decision affected them and their clients.

It would also give NZICA time to inform its members and to encourage them to make voluntary disclosures where appropriate, said Frank Owen, NZICA's acting tax director.

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"We will be working closely with the IRD to promote this decision with our members and to make sure that our members have all the answers they need."

Ernst & Young tax partner Jo Doolan said until now, the IRD's offer had lacked clarity around when the offer would expire.

"Today's offer draws a line in the sand for taxpayers," she said.

"But it is limited only to those who have not already received a letter from the IRD notifying them that their tax position is being reviewed."

Revenue Minister Peter Dunne, the IRD and NZICA were to be congratulated for their proactive approach but taxpayers would be justified in having "a sour taste in their mouths", she said.

Before other taxpayers "rock up to the tax confessional" they should consider all facts and circumstances outlined in the Penny and Hooper case.

"There is still too much focus on an ambulance at the bottom of the cliff when it comes to tax administration.

"The way the IRD continues to try to rewrite our tax laws by applying the anti-avoidance rules undermines the integrity of the tax system and leaves one with the feeling the Revenue is trying to squeeze the last bit of toothpaste from an already-empty tube."

Struggling businesses do not need to be side-tracked by engaging in a lengthy battle with the tax office, she said. The amount of tax at issue was unlikely to outweigh the cost of an ongoing tax dispute.

"For that reason, the latest offer from the IRD is welcome and needs to be taken seriously by all those who could be impacted. But you do not automatically have a problem. Take advice first."